Vietnam is expecting a wave of Indian investment after the meeting between Prime Minister Nguyen Xuan Phuc and representatives of Indian firms in the framework of the ASEAN-India Senior Officials’ Meeting (SOM).

At the meetings with the PM on the sidelines of the SOM on January 24-26, 2018, representatives of large-scale Indian firms affirmed their wish to invest in large-scale projects in Vietnam. One of the outstanding meetings took place between the PM and Anil Sardana, managing director of Tata Power, which plans to develop the Long Phu 2 thermal power project in the southern province of Soc Trang.

In 2008, Tata Group, the parent company of Tata Power, expressed ambitions to develop a steel manufacturing plant worth $5 billion in the central province of Ha Tinh. However, in 2014, Tata Group had to withdraw from the project for a variety of reasons.

Then, Tata Group, through Tata Power, decided to develop Long Phu 2 thermal power plant under the build-operate-transfer (BOT) format and received approval from the government.

According to the plan, the 1,320MW project will have a total investment capital of $2 billion. In November 2013 Tata Power and the Ministry of Industry and Trade signed a memorandum of understanding (MoU) to develop the project. At this meeting, Anil Sardana announced that Tata Power had solutions to accelerate the capital collection.

Along with Long Phu 2, Tata Power expressed interest in developing the Long Phu 3 thermal power project and conduct surveys to find investment opportunities in wind power in Soc Trang and Ninh Thuan provinces. At present, the firm operates a coffee processing plant and VISSAI port.

The PM also joined meetings with leaders of India-based conglomerate Larsen & Tourbro Group, ONGC Group (the largest oil and gas group in India), and vDoIT Company operating in the IT sector. Numerous initial investment plans in energy, IT, and ship building were mentioned. The PM highly appreciated these plans and reminded the Indian partners that Vietnam is looking for environmentally-friendly projects.

While the fate of the above-mentioned projects remains unclear, Tata Power’s plans alone would affect a large change in FDI inflows from India. At present, India stands 27th on the list of foreign investors in Vietnam. In case Tata Power develops the Long Phu 2 project, India’s position will definitely improve.

According to statistics published by the Foreign Investment Agency under the Ministry of Planning and Investment, as of December 2017, India invested 169 projects in Vietnam with total investment capital of $756 million.

This figure is quite small compared to South Korea, Japan, Singapore or the US. However, in 2017 alone, Indian firms poured $187.5 million into Vietnam, equal to 25 per cent of the total FDI from India in the past 30 years. This shows that Indian firms are awakening to Vietnam’s potential as an investment destination.

Concerns about India’s break to the top

In reality, Vietnam and India are rivals in attracting foreign investment. In recent years, by reforming its foreign investment attraction policies, India has become a magnet for foreign investment.

Notably, in the last three fiscal years, India has attracted $114.41 billion in FDI, up 40 per cent compared to the $81.84 billion in the previous three fiscal years.

Especially, after the issuance of the “Made in India” policy, between October 2014 and March 2017, India acquired $99.72 billion in FDI, up 62 per cent compared to the period between April 2012 and September 2014.

Even China grew concerned about the soaring FDI in India, especially in 2015, when for the first time India ranked first in the world in FDI attraction with the total investment capital of $63 billion, exceeding China’s $56.6 billion and the US’ $59.6 billion.

Vietnamese economists also warned about the competition with India after Apple Inc. released its intentions to manufacture iPhones in India.

India is an ideal investment destination for foreign investors as the country’s government issued sweet incentive policies to lure in FDI. In one policy, India permitted foreign airlines to own a 49 per cent stake in Indian national carriers, which are facing financial difficulties. Additionally, India has also loosened regulations in the retail sector to attract investment.

Besides, India offers low-cost human resources with the labour cost 50 per cent lower than in Vietnam. Furthermore, India has an advantage in high-tech industry as it is considered the “Silicon Valley” of Asia.